From Royalty to Rags

With Bank Leumi demanding temporary receivership for the once-grand Princess Hotel, everyone seems to have an opinion about why it amassed NIS 200 million in debt in under a decade.

Hila Raz
Irit Rosenblum
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Hila Raz
Irit Rosenblum

Bank Leumi, which claims the owners of Eilat's Princess Hotel owe it NIS 197 million, on Wednesday asked the court to place the establishment in temporary receivership. "It's a sad story of a hotel that was the grandest one in Israel in 1992, when it opened," is how a tourism industry higher-up recently described the straits in which the facility now finds itself.

Figures at Lexan Israel, the company that owns the property, rejected claims that the hotel's financial problems stem from poor management and said the debt amounted to only a fraction of the company's value.

Eilat’s Princess HotelCredit: Ori Ackerman

Lexan is owned by the Frankfurt-based real estate developer Alexander Tessler. Officials in his company say Leumi's move was not only aggressive but also unnecessary, as Lexan can easily stand by every single hotel commitment to the bank, to suppliers and to customers, and can continue to run the Princess.

As reported in TheMarker on Friday, the Tel Aviv District Court will make its decision only after hearing Lexan's version of the situation, which is set to happen on Tuesday. Despite company officials' claims that the court agrees with Lexan's view of Leumi's moves, Judge Eitan Orenstein ordered the firm not to make any changes in its operations or to transfer any assets in the meantime.

The beachside resort is a 10-minute drive from the center of Eilat, in the direction of Taba and the Egypt border crossing. It boasts 335 guest rooms, including 33 "premium" rooms and 64 suites.

The industry official, speaking to TheMarker anonymously, attributes the facility's mounting debt to poor planning.

"The hotel was built using big loans," he said. "The owners' original concept was not to work with trade union groups or with charter flights," thus cutting itself off from the bread and butter of Israeli hotels - discount packages offered to union members through their workplaces.

"In practice," he continued, "the market in Eilat changed dramatically, the customer mix was turned upside down and today around 85% of hotel occupancy in the city is from domestic tourism."

When it first opened, the Princess Hotel was a major attraction, and anyone who considered themselves important wanted to stay there. But the wow factor dimmed when other premium hotels opened up in the Red Sea resort town, including the Dan Eilat, the Royal Beach and the Las Vegas-style Herods Palace, with its costumed centurions and Dome of the Rock look-alike by the pool.

The Princess' location outside downtown Eilat only complicated matters: There are plenty of lovely hotels, including many newer luxury establishments, in the center of town - meaning the majority of vacationers can dispense with rental cars or even taxis. Guests of the Princess do not have that option.

Tessler eventually had to abandon his millionaires-only dream and begin catering to the trade union groups, a decidedly down-market step.

"Another 20 or 30 million shekels would have to be put into the hotel to bring it up to the five-star level where it sees itself," one Eilat hotelier said, who like the other figures interviewed for this article did so on condition of anonymity. That renewal would come on top of the makeover the Princess has been undergoing for the past two years, since Eyal Moneta was named general manager.

"The hotel lost its market position, and a few events contracted by French nationals can't fill up 350 rooms," a travel agent said. "The pretty suites aren't what the northern district electric company employees want. They want pool activities and performances by Mizrahi singers."

"Tessler committed the sin of hubris; once he realized that he didn't understand the market, he should have put the hotel under the management of a local chain," the travel agent added.